Nepal Rastra Bank has allowed foreign banks to open branches or contact offices in Nepal. The permission came after the government introduced the new Financial Institution Ordinance to amend laws related to banks and financial institutions.

"In order to further enhance the present competitive environment in Nepal's banking sector, branches of foreign banks and contact offices of renowned international banks are being allowed to operate in Nepal," says the new ordinance. But it prohibits any foreign bank or financial institution allowed to operate in Nepal to go for a joint venture with any other bank or finance company. In the process of getting the membership of the World Trade Organisation, Nepal made a commitment that it would allow foreign banks and financial institutions to operate after 2008. Before this, foreign banks were only allowed to do business in partnership with Nepali investors.

The amended Act also allows the banks to issue shares. But the Act also prohibits the same facility to the banks that have been operating under joint venture partnerships.

The new Act authorises foreign banks and financial institutions to inspect their branch and contact offices after authorisation from Nepal Rastra Bank. Acts including Agricultural Development Bank Act, Banijya Bank Act, Financial Company Act, Nepal Industrial Development Corporation Act and Development Bank Act have been amalgamated into one new Act that categorises financial institutions into four classes. Under the new provision, banks and financial institutions can be upgraded if they perform better, earning more benefits. But if they fail to meet the conditions set by the Nepal Rastra Bank, they will be demoted. The new Financial Act prohibits withdrawals and transfers from bank deposits belonging to people and institutions involved in tourism. Another provision authorises the government to freeze any account under investigation.